Inheritance tax is tightening its grip, with the number of liable estates surging 13% ahead of major reforms set to shake up the system next year.
A total of 31,500 estates were liable for IHT in 2022-23, representing 4.62% of all UK deaths—a rise of 0.23% from the previous year. Tax liabilities reached £6.7 billion, marking a 12% increase year-on-year.
This upward trend comes as significant reforms to the inheritance tax regime are set to take effect from April 2026, which are expected to bring many more estates within the scope of IHT.
Under the upcoming changes, relief on assets qualifying for business relief (BR) and agricultural relief (AR) will be capped at £1 million. Any value above this threshold will attract only 50% relief, effectively imposing a 20% tax rate on the excess.
Additionally, listed shares treated as unquoted shares—including those on the Alternative Investment Market (AIM)—will now qualify for just 50% relief, down from 100%.
Further reforms scheduled for April 2027 will introduce inheritance tax on unspent pension pots, which is expected to affect approximately 8% of estates.
According to the Office for Budget Responsibility’s (OBR) March 2025 Economic and Fiscal Outlook, IHT receipts are forecast to reach £8.4 billion in 2024-25—an 11.6% rise from 2023-24, driven largely by higher asset prices combined with frozen tax thresholds.
By 2029-30, receipts are expected to increase further to £14.3 billion, with around £2.5 billion of this growth attributed to the planned IHT reforms announced in the October 2024 Budget.
Ben Handley, tax partner at BDO, noted that while the recent data shows a relatively modest increase in the number of estates liable for inheritance tax in 2022-23, “we’re likely to see many more people dragged into the IHT net when seismic changes to the regime come into force from 2026.”
He explained that “from next April, the capping of business and agricultural relief to £1 million of qualifying assets will bring many business and farm owners into scope for IHT for the first time.”
“These latest figures for 22-23 show that families of business and agricultural owners benefitted from £5.8 billion of inheritance tax relief but this will reduce significantly from April 2026 onwards."
Mr Handley also highlighted that “draft legislation published last week shows the government is determined to push ahead with its IHT proposals despite strong pushback from many in the business and farming community.”
He pointed out that “the publication of draft legislation has also dashed hopes that the £1 million allowance for agricultural and business relief would be made transferable, bringing it into line with the nil-rate band and residential nil-rate band.”
Looking ahead, he warned that “further changes due in April 2027 will apply inheritance tax to unspent pension pots. These changes will impact around 8% of estates – and add significant administrative burdens to families at a difficult time.”
“Taken together, these reforms mean it’s even more important for people to plan for the future and determine how to pass on their assets to the next generation in an efficient way,” Mr Handley said.
“This is particularly true for business and farm owners. If their wills aren’t reviewed and updated before April 2026, their beneficiaries could risk losing out on important reliefs.”
